Welcome to Offshore Living Letter, Your #1 Resource for Offshore Diversification

Rare Earth Metal Demands In China Offer Diversification Opportunities

01 Feb
Rare Earth Metals in China going from conveyer into truck

Rare Earth Metal Demands In China Offer Diversification Opportunities

Why I Recommend Rare Earth Metals For Diversification And An Inflation Hedge

Commodity prices in general are down. China’s slowing economy and slow recoveries in the United States and Europe are conspiring to bring down prices for everything from copper, iron ore, and oil to wheat and sugar.

According to the IMF’s year-end charts, the only commodities whose prices rose in 2015 were bananas, olive oil, poultry, and uranium. I guess people switch from beef to chicken when times get tough. I wouldn’t want to speculate as to why uranium prices are up.

Prices for rare earth metals, which I’ve been recommending to you for the past year, are down as well, and a strong dollar and a slowing global economy may keep them down for some time. However, China is trying to crack down on illegal recycling operations that create many of these industrial metals… and the global economy won’t stay slow forever.

All of this means that right now could be an excellent time to park some money in industrial metals as a hedge against inflation and a future weaker U.S. dollar.

In addition to cracking down on the illegal recycling of rare earth metals, the Chinese are also pushing ahead with plans for new energy vehicles, including fully electric cars, hybrid cars, and fuel cell vehicles. The expectation is that China will build 200,000 of these types of cars this year, meaning the country needs to install the infrastructure to support that production.

All of the technologies used to make these kinds of cars require the use of rare earth metals. The Chinese want to control their inventory of these metals to make sure they have enough supply for their own purposes. In addition, they are keen to control the global supply as much as possible. They produce the majority of the global supply of these metals at this point.

China’s current activities and agendas related to both the production and the use of these metals aside, rare earth metals are integral to most all high-tech products. This is not going to change. Meantime, world demand for these products continues to increase while supply is limited.

What To Buy And Where To Buy It

The question is what to buy and the challenge can be where to buy it. You can’t call your stock broker and place an order. These are industrial metals traded through brokers who buy from suppliers (mostly in China) and sell to manufacturers.

That said, I’ve found one broker in Germany who also sells to individuals who want to hold some of these rare earth metals for the diversification and inflation hedge they provide.

This group has been in the rare earth metals business for more than 25 years. They have both the contacts to source the refined metals for purchase and the ability, thanks to their connections to manufacturing clients, to help you resell your metals should the time come for you to liquidate.

You can store your metals in the group’s bonded warehouse or you can take direct delivery and store the metals yourself.

Nothing To Report

One benefit for Americans who own these metals (as well as gold and silver) is that the assets needn’t be reported on any IRS forms, not even if they are stored in the bonded warehouse overseas. As long as the asset is allocated metals (that is, a bar or crate of metal that is specifically yours, which is what you’d be buying from the group I’m referencing), you have no U.S. reporting requirement.

Having a personal store of wealth outside your home country is an obviously good idea. Whether it is real estate, gold, or rare earth metals, international diversification is how wealthy families from countries with tumultuous economies and worrisome governments have been able to preserve and grow their wealth over time, from Argentineans who keep money and own real estate in Uruguay and Brazil to Venezuelans who invest in condos in Panama City.

In truth, no matter where you call home, you should own and hold assets beyond those borders. This is how you insulate yourself from a risk of losing everything should things go south in your home country.

Rare earth metals are an easy way to add to that kind of diversification.

Lief Simon

Editor’s Note: For more details on adding strategic metals to your portfolio, get in touch here.